Q3 2021 USANA Health Sciences Inc Earnings Call

Good day and welcome to the USA in a health Sciences third quarter Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Patrick Richards Executive director of Investor Relations and business development. Please go ahead Sir.

Thank you and good morning, we appreciate you joining us to review our third quarter results Today's conference call is being broadcast live via webcast.

Can be accessed directly from our website.

At IR got you saw on our Dot com.

Shortly following the call a replay will be available on our website as a reminder, during the course of this conference call management will make forward looking statements regarding future events or the future financial performance of our company.

Those statements involve risks and uncertainties that could cause actual results to differ perhaps materially from the results projected in such forward looking statements.

Examples of these statements include those regarding our strategies and outlook for fiscal year 2021.

As well as uncertainty related to the magnitude scope and duration of the impact of the COVID-19 pandemic on our business operations and financial results. We caution you that these statements should be considered in conjunction with disclosures, including specific risk factors and financial data contained in our most recent filings with the SEC.

I'm joined this morning by with our by our CEO and Chairman of the Board Kevin guest our President Jim Brown, our Chief Financial Officer, Doug hacking as well as other executives.

Yesterday after the market close we announced our third quarter results and posted our management commentary document on the company's website.

Now hear brief remarks from Kevin before opening the call for questions.

Thank you Pat and good morning, everyone. We appreciate you joining us to review our third quarter results.

As we reported in our mid September press release disruptions and Lockdowns due to the ongoing COVID-19 pandemic affected our performance in several of our key markets during the quarter.

Yesterday, we reported that our final third quarter results were modestly better than our preliminary projections and Ria, we reiterated our fiscal 2021 net sales and earnings per share outlook.

So the takeaway is that although the back half of the year has presented and the anticipated challenges, we expect 2021 to be a record revenue year for Usama.

As we enter the fourth quarter, the operating environment in many of our markets around the world remains unpredictable. So it's difficult to project with sales activity and momentum in our business will completely rebound.

Notwithstanding the current environment, we continue to execute our growth strategy and are optimistic about our prospects for continued growth in 2022 and more importantly in the long run.

We will also continue to place a high priority on strategically investing in the business today in order to drive growth Tomorrow.

Our overall growth strategy continues to be centered on generating sustained sustainable customer growth and engagement curating micro entrepreneurs and enhancing the overall experience our customers have when doing business with you saw on them.

In this regard we continue to be focused on one improving our technology and providing our associates and customers with a seamless shopping experience to.

Launching new products and product lines, three identifying and executing growth opportunities in existing markets for pursuing international expansion opportunities and five capitalizing on business development opportunities, including strategic investments and acquisitions.

Close by saying that we remain confident in the strategies, we are pursuing for the long term health of our business and in our overall long term growth potential in our markets globally with that I'll now ask the operator to please open the lines for questions.

Thank you.

I'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your.

Your signal to reach our equipment.

Press Star one to ask.

Ask a question, we'll pause for just a few moments to allow everyone an opportunity to signal for questions.

We will take our first question from Stephanie Wissink with Jefferies.

It's actually Chris me minus on for Steph. Thank.

Thank you for the questions I wanted to touch on the fourth quarter, if I might the midpoint of your guide really implies a flattish to slightly negative sales number.

But just given the outside dropping customers reported at the end of this past quarter, how do you gain confidence in generating that level of revenue on a smaller overall starting base are.

Are you seeing anything October to date that would imply that sort of attrition has kind of stabilized.

Yes, Chris this is Doug I'll, probably hold off on giving too much color on what we're seeing so far in the quarter, but.

One of the nice aspects of how we report our customer accounts as it gives the true measure of who purchased during the quarter.

And what you saw in the third quarter represented you know I think as you indicated in some of the notes a falloff from where we were in the prior quarter and the year ago quarter and a great deal of that falloff had to do with the absence of the short term sales program during the quarter and we were quite a you know a optimistic.

About many of US many of the aspects that we're kind of pushing on and a little disappointed that we didn't see some of those customer accounts Cascade four we saw a similar pattern last year. After we ran this program. We definitely made increased effort, but I think the environment made it a little bit more challenging to kind of.

Kind of execute on many of the things that we wanted to execute on and we're still working on it. It's it we we still recognizes as a critical part about touching those customers early in their journey with the company as far as the fourth quarter goes.

Listen I I think the the measures that you saw in the third quarter and what were expecting the four quarter would go back and lead you to believe that we'd see something roughly similar and customer counts that we saw in the third quarter and so based upon the guidance we put out there I think that's roughly our expectations at this point.

Got it that's great color and then for my second one I just wanted to ask is it your sense that.

Maybe the drop in customers.

Reflecting that some may have moved away to maybe alternative solutions and then maybe this is just a follow up to that how do you really think about kind of re activating and.

Engaging some of those lost customers and associates any color there would be great.

Yeah, and what can I I think when we have a pretty prominent short term program like we had in the third quarter of last year in the second quarter of this year, we have seen some dips in customer accounts following that.

We believe that we changed it a little bit the structure and we put some programs in place to offset that and that's that's obviously not what we saw and we're definitely not a.

Totally pleased with the results there and I think the environment definitely has something to do with it.

But I think it's less to do with.

With kind of the overall thing and I think it has more to do with the customers that we brought on during that period of time and how you know how we engage with them early on Kevin.

Yes, just a this is Kevin an additional thought is we continue to focus our strategy on growing our active customer count, which is an opportunity for us to look at retention and how to retain people and our long term strategy over the last several years. So we've talked about on these calls is our advanced <unk>.

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Which we believe will help us in the future as it relates to our active customer count.

And then the second part of your question, Chris was really re engaging some of those customers. We always have some program going on in the marketing team always has an outreach going on.

Oftentimes that met with somewhat limited success as far as reaching out to someone after they're not buying anymore, but it's something we continue to do and I think we're finding new things that do work as we move forward.

That's great. Thanks, a lot guys.

And again to ask a question. Please press star one.

Star one thank you.

Like to ask a question.

Well take our next question from Doug Lane with Lane research.

Good morning, everybody.

You mentioned the delay.

New products.

Kevin.

COVID-19 resurgence small construction.

Can you be a little bit more specific on what the change in plans was there or is it basically just been pulled back somewhat 2021 is that and will be included in 2022 or exactly how does that timeline change.

Yeah, I think that's pretty much it either either they got pushed to the fourth quarter Youll see them kind of roll into the first part of next year and I think a lot of it has to do and I think it's it's it's well report out there does that Youre just seeing some disruption just even in transit times and doing some of this other stuff and whether that market is really able to fully roll that out in the current environment and it really is mark.

Specific.

On how its impacted us.

And what were the key products that were delayed.

We see some additional work with our active nutrition and some I guess, some some products that had some pretty close ties to that and just just kind of our standard some product introductions that we had scheduled that had been kind of pushed out.

But primarily active nutrition was a big focal point.

Does that change your outlook for 2022 of that crowd out some product activity you had slated for 2022 or will that just be added to what was already on the docket.

'twenty two.

Yeah, I don't think it provided that we don't have any more unforeseen kind of.

Challenges I don't think it should disrupt other plants that we had for 2022.

Okay. That's fair enough and then same with the same question really we provided guidance. If I remember right you were talking about a lot of it into the fourth quarter and I assume that that's been scrubbed, but can you update us on when you expect to be hosting major live events again.

Yeah. So go ahead, Jim I'll, let you take them so right now in China, they're having a national meeting that's scheduled for the beginning of December so right around the corner that is scheduled now to be life of course that could always change according to the market and market. There are large events that are happening there.

Our second quarter at our AP Convention, that's gonna be a virtual event like we've been doing and then August of next year at our international 30th anniversary event. That's planned to be live again those could change. According to requirements are what happens with the pandemic, but right now that's the schedule.

Doug maybe to add on there I think once again, it's it really relates to what the activity level is in market and really what's what makes sense in the market given the current environment. So it's nice to see and I think the China team is eager to go back and have some in person opportunity to go back and engage and do this other stuff and so we're hopefully that that comes to pass.

We're planning I think you've seen Korea be able to go back and have a few small in person events as well and so we see that as very encouraging sign going forward as well.

Okay. That's helpful.

Global events in Salt Lake City.

Next August or July I believe.

And you mentioned the 30th anniversary, so I would expect.

The bigger news than usual, how should we think about.

What what kind of promotional and product.

And around here.

Really convention.

Yes, it's interesting times because under normal circumstances, it would be a huge event. The thing that we're going to do is we're going to continue to have that live and we know that there are certain markets. For example, China that gets 1000 to 500 people that come may not be open to come into the event of course, we want to look at potentially having some products to.

We announced at the convention.

And entertainment at a different level than we have in the past because of the 30th anniversary, but when we come to attendance and what we're planning we're planning kind of flat to down from previous years. When we've had that event only because we're just not sure of what markets will be open at that time.

No that makes total sense and just lastly can you talk about China, just what what's going on with that market I mean, other than just sort of the pandemic related openings and closings.

Read about in the paper, what about nutritional supplement market in general on your business specifically following that.

The day review period, which really doesn't seem right anybody's really recovered from that well.

Can you talk about the.

The market for supplements.

As products specifically in China.

Yeah, I think some of the broader market indicators. We see is we see some support for those types of products I think obviously the pandemic has brought a lot of the stuff to the forefront are top of mind type discussions.

But without a doubt Doug I think some of the some of the things you're saying is true. It's just that that was a pretty disruptive event that that definitely had a disruption consumer confidence, but I I think the I think the recognition of playing a role in your own health and taking products that are additive. There I think is definitely on the minds. So I think we're optimistic I think what we're hearing from the team there.

As optimistic with some of the plans they have a rolling out next year, but it's.

It's been a longer process than what we had anticipated.

Okay. Thank you.

Thanks, Doug.

That concludes today's question and answer session speakers at this time I will turn the conference back over to you for any additional or closing remarks.

Thank you for your questions and for your participation in today's conference call. If you have any remaining questions. Please feel free to contact Investor Relations at 801, 90 547 to one zero. Thank you.

Okay.

This concludes today's call. Thank you for your participation you may now disconnect.

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